I came across a company that sells homes to investors and owner occupants utilizing Assumable Subject to Land Trusts. What are the Pro's/Con's and more importantly the pitfalls or things to be very aware of in order to self protect?
Usually the biggest risk comes from the mortgage company calling the loan under the DOSC. An additional risk comes from how the insurance for the home is set up and is funded. That often times gives a signal to the mortgage company that something is going on that's not right. Next, the land trust has to be set up correctly with the proper language as to the trustee and beneficiary(ies) duties, obligations and ownership. Lastly, the fees for this type of arrangement can suck all of the equity advantage out of the process. Just be careful, read the documents and ask questions until you are satisfied.
Despite the name, the loans are almost certainly NOT assumable. This is just subject to. The land trust is a way to TRY to hide the transfer from the lender. But its still a subject to and the due on sale clause may well be enforced.
When you see any company or investor that specializes in tactics that have the underlying purpose of evading or getting around the usual and customary red flags should pop up, rockets should be bursting in the air and sirens should be blaring.
Why are they using trusts? Usually a tactic claiming that you can avoid or evade the due on sale aspects, which is totally untrue, a trust doesn't change anything. There are many ways that a lender can discover that a property isn't owner occupied or that some beneficial interest has been transferred.
Frankly, they think they are out smarting the system or the intent of rules, regulations and laws.
Obviously, they are manipulators. And, there is no reason to. If you want to do an assumption or a Sub-2, there are "up front" ways to accomplish the transaction.
I'm not saying that using a trust is illegal, it's not, the question is, why is a trust being used, what are the intentions? What is the sale pitch to go that route?
My guess is that behind such specialties as a solution to every thing that comes along, you'll find someone who lacks knowledge, manipulates others to facilitate a transaction, someone who will be defensive about what they do as an ethical stance, that attempts to use loopholes or convoluted strategies as a marketing aspect convincing others that they can avoid matters that may restrain business. Business ethics are low and you'll usually find that type being self centered thinking very little of others while the pitch will be just the opposite.
It's an attitude in how they conduct their business. It's an attitude people should avoid, I'm not conducting business with someone who starts off in a transaction that adopts tactics used to deceive others, primarily because if they deceive one party connected to the deal how could you trust them not to deceive me as well.
Judges don't smile upon these types either, soon or later how you approach doing business will catch up with you. :)
Anything that isn't straight forward I'm always hesitant about. I posted this topic to gain a better understanding and hopefully help someone else who comes across an advertised bundled product like this one. I hope they aren't screwing those new homeowners.
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